Wednesday, January 2, 2008

Steven Crist: Publisher and Columnist, Daily Racing Form

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The exceptions to that rule are blackjack and poker. If you count cards diligently in blackjack, you can get a 1.5 percent edge over the house. Casinos, of course, don't get built by players having edges, so the casinos will eject you if they figure out that you're counting cards. This happened to me - I was playing a friendly game of blackjack at the Barbary Coast in Las Vegas about ten years ago, and suddenly a floorman came up to me with an Instamatic camera. I thought, "Wow! This guy recognizes me from horse racing telecasts!" I thought he would take my picture and put it up on the gambling wall of fame or something. Instead, he took my picture and said, "Sir, you are no longer welcome to gamble in this casino." Even though I was only playing five and ten-dollar blackjack, I was still counting cards. That is a very small edge that they don't let you have.
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When the other players are setting the prices, it is an entirely different story because somewhere between frequently, occasionally and rarely, the public makes the wrong price. That is the beginning of the successful equation in horse racing. It took me about ten years as a racing reporter and columnist, trying to track down the elusive method of picking the winner of every race, to realize that that was a fool's errand. In ten minutes I can teach anyone in this room how to pick the most likely winner of a horse race. There are data about past performance that we publish in the Daily Racing Form that correlate very strongly with the most likely winner in the race. Most horse players spend their lives thinking that if they just studied a little bit harder or got a little bit smarter, they could pick the winner of the race enough to make some money. There is no such thing. Picking the most likely winner is no great feat.
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What you wait for as a horse player (and investors tell me that they wait for the same thing) is mispricing, for the public to make mistakes. I cannot say for sure why the public makes mistakes in your world, but I know why they make them in mine. The people who most influence the odds in racing are known as "public handicappers". These are the guys at the local paper who run a set of picks every day. "Clocker Joe" or "Cowboy Jim" give you their 1-2-3 picks in every race. Their 1-2-3 picks have an entirely different motivation than your presumptive motivation to make money. Clocker Joe and Cowboy Jim want to pick the greatest possible number of winners so that they can remind their boss at contract time that they picked 31 percent winners in the previous year. That's pretty good for a public handicapper. Yet, with a typical payoff structure, Clocker Joe will still have lost his customers money. We have already taken this analysis to a level of investment and mathematical sophistication far beyond the ken of any metropolitan sports editor. The sports editors continue to reward the Clocker Joes of the world who pick 31 percent winners at very low prices because they don't understand the equation of Price X Probability = Value.